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GORO Earnings Preview

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Mere weeks after suffering through one of the goriest moments in this miner's brief history, investors will now get to sift through the gory details.

Gold Resource (NYSEMKT: GORO  ) blindsided investors a few weeks back with news of a second major downward revision to full-year guidance for 2012, and sent the stock for a related 16% dive. Since then, a spate of class action lawsuits and related investigations has cast a shadow over the near-term outlook for the shares, rendering the information that may be gleaned from the company's third-quarter earnings report all the more crucial in ascertaining the likelihood of a prompt recovery for the shares.

Since the company remained profitable through the horrific second quarter, when production plummeted to just 14,488 gold-equivalent ounces (GEOs), I expect the company to maintain a modest net profit for the third quarter given production volume of 22,300 GEOs. Similarly, I hope to see a sharp retreat in per-GEO production cost from the $509 mark recorded in that second quarter. It's not uncommon to see costs spike dramatically when operational challenges strike, but any failure of those costs to retreat can indicate a sluggish resolution of those challenges.

Specifically, investors will want to watch for progress in minimizing dilution of the underground mine's high-grade ores by sub-optimal mining procedures. The company has taken strong steps in the right direction, including the hires of multiple new unit managers, and a new general manager who previously oversaw one of Yamana Gold's (NYSE: AUY  ) high-quality mines. The company has warned that dilution challenges will remain for the remainder of the year, but I encourage investors to watch the sequential progression of average ore grades in order to gauge the company's progress on that front.

A parting note on ore dilution
Ore dilution is an ever-present threat to miners. The key aspect for shareholders to watch for resides in the measures undertaken to minimize dilution, and how effectively those measures are executed. El Aguila is a young mining operation, and it is not unusual to suffer bouts of dilution. What you don't want to see is a company that suffers from excessive dilution quarter after quarter with no plan in place to fix it. AuRico Gold (NYSE: AUQ  ) failed to unlock the value in the El Cubo mine, partly as a result of poor mine oversight and widespread ore dilution. That created an opportunity for new mine owner Endeavour Silver (NYSE: EXK  ) to leverage its operational excellence and achieve a quick turnaround in average ore grades. Ore dilution only becomes a red flag to investors in cases where the condition persists over extended periods with no indications of a coordinated or effective response effort. Although I will certainly scour GORO's earnings report for indications of ongoing progress with respect to restoring previously envisioned production volumes at El Aguila, as a long-term investor I permit mine operators more than a quarter or two of leeway with the industry's inevitable sorts of setbacks before I begin to grow concerned.

Goldcorp is one of the leading players in the gold mining market. For the last several years, investors have been the beneficiaries of several successful acquisitions and strong organic growth. Goldcorp's low-cost production of one of the most sought-after metals in the world continues to make them an attractive choice for long-term investors. Click here for our detailed report to discover more about this mining specialist.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 09, 2012, at 11:36 AM, BelVegas wrote:

    Take off the blinders. The only sharp retreat you'll see on GORO is it's share price, not cash costs.

  • Report this Comment On November 10, 2012, at 6:00 PM, skypilot2005 wrote:

    AuRico Gold Announces Continued Exploration Success at Young-Davidson

    Toronto: November 6, 2012:

    AuRico Gold Inc. (TSX:AUQ) (NYSE:AUQ), (“AuRico” or “the Company”) today provided an update on its 2012 exploration program at the Young-Davidson mine, located in Ontario, Canada.

    Drill results continue to demonstrate potential immediately to the west of the mine.The Company currently has five diamond drills on surface exploring a number of target areas. Year to date, almost 29,000 metres have been completed, focusing primarily on two areas:

    • The YD West Zone, which is located west of the Main Zone below the 9,500 metre level. This zone, first discovered in 2010, has been further defined to the west and at depth and remains open in both directions.

    • The West Shirriff area, which is located immediately to the west of the YD West Zone (Figure 1). Results from this zone show anomalous gold of the same rock type and alteration type as the main zones that make up the Young-Davidson mine.

    Chris Rockingham, AuRico’s Vice President of Exploration commented “Results are in line with expectations and we are pleased that the drill program continues to demonstrate that mineralization extends well beyond the existing reserve. Additional work will be conducted to further test the continuity of the YD West Zone to the west and at depth. Preliminary information from the West Shirriff area provides encouragement for mineralization beyond YD West, approximately 1 kilometre from the mine.”

    The objective of the 2012 exploration program is to focus on continuing to better define the YD West Zone and to conduct follow-up drilling on additional targets.

    YD West Zone:

    11 of 14 planned holes have been completed, with the balance in progress. Seven holes successfully intersected the YD West horizon whereas four holes were dyked out at the target horizon. All seven intersections contained gold bearing intervals and six of these contained seven intervals that exceeded the cutoff grade of 1.1 g/t Au over a mineable width for classification as a resource. The following intervals also exceeded the cutoff grade of 1.7 g/t over a mineable width for classification as reserve:

    • 16.9 metres grading 3.99 g/t Au (YD12-253),

    • 66.8 metres grading 1.89 g/t Au, including 21 metres grading 2.5 g/t Au (YD12-253A)

    • 9.9 metres grading 1.71 g/t Au (YD12-253C)

    • 11.6 metres of 2.77 g/t Au (YD12-266)

    One drill hole (YD12-266) intersected a gold zone about 55 metres further into the footwall than forecast in an altered brecciated syenite structural zone. This is a new style of gold mineralization on the property and the orientation of the structural zone is being investigated with new drilling


    Long AUQ

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